Archive

21

Are you looking forward to your tax refund? What are you planning to do with it? It seems the only consolation for having to go through the hassle of filing taxes is that you receive a chunk of money back at the end. Now the first thing to keep in mind is that this is your money that the government was holding onto that now they are giving back to you. It’s not a gift or a prize of some sort.

Now that you suddenly have money in hand that’s outside of your normal budget, a lot of businesses are going to try to convince you to spend your refund with them. I strongly encourage you, though, to divert it to savings instead. The IRS estimates the average tax return for 2019 will be $3,000. Think about the long term – if you take $3,000 now and put it into savings, and then do it again next year, and so on, over the next 10 years that’s an extra $30,000 of previously unplanned savings (plus if you put it in the right place, you can potentially end up much further ahead in the long run). On the other hand, if you spend it now, what will you really have to show for it in the long run? Upgrading some toys now doesn’t leave you with a growing retirement nestegg.

Human nature is hard to overcome. If your habit is that you use that money to splurge, maybe you can make an adjustment this year – enjoy some of it now, but save most of it for the future…say spend $500 and save $2,500. We’re talking about your future, here. You owe it to your future self and your family to plan ahead. If you struggle to save monthly, this could be a way to finally save like you say you want to and know you need to.

Wanting to implement this saving idea is awesome. Taking some kind of action (even imperfect action) is good, but knowing where you can maximize your money takes guidance from an expert. In our business, we decided to tear down all the barriers that keep the middle class from receiving the strategies that wealthy people use. We do not charge you any fees at any point in the process and we do research among some of the top companies in the industry to find the right fit for you. Reach out and we’ll set a time to talk through your situation.

9

Do you know what tax bracket you’re in? Do you know what your tax bracket will be in 20 years? I know for most of us, taxes aren’t a fun topic. We only deal with them when we’re forced to. But, stick with me for a moment…this is actually about your savings.

Every year, us good citizens give Uncle Sam a slice of what we earn. That is unlikely to change, but what does change is how those taxes are structured and that affects how big a slice we are expected to hand over. It’s easy to know where things stand right now, but when you’re saving for retirement, you have to consider how taxes might change between now and when you start using your saved funds.

Contrary to what many people believe, your IRA, 401(k) and other retirement accounts are not tax-free, they’re tax-deferred. This means the money grows without paying tax along the way, but any money you withdraw will be taxed according to whatever the tax laws are AT THAT TIME. If you’re in a higher tax bracket later, you’ll pay more then than you would now. If tax rates are raised, again, you may be paying more then than now. The problem is, there’s no way to know what future generations of Congress may define.

There are accounts that are tax-advantaged, meaning you pay tax on your income now and then use it to invest in these strategies. In these accounts, your money can grow tax-free and then when you use the funds they are also tax-free as long as you stay within the IRS rules. Maybe you should consider shifting some (or all) of your 401(k) contribution toward tax-advantaged strategies to diversify your portfolio across tax categories, not only across investment vehicles.

If you have questions, reach out to us. We teach people what options they have and guide them to actually implement solutions that work to meet their goals and needs. Don’t wait until you get a tax bill you don’t like to start looking at your situation.